Guangzhou: No Longer A Third-Rate Luxury Market?

First-Tier City Long Associated With Third-Rate Luxury Market

This week, Louis Vuitton opened its largest China flagship at Guangzhou's Taikoo Hui mall

While it may be very much a top-tier city, with an annual GDP of over 1 trillion yuan (US$152 billion) — placing it in an elite group that also includes Beijing and Shanghai — Guangzhou can be a frustrating market for major luxury brands. Despite the showpiece malls and comparatively high per capita income of Guangzhou residents, top brands have been slow to invest heavily in their Guangzhou operations, and for good reason: local luxury consumption lags far behind other key markets. As one luxury retailer told the Yangcheng Evening News this week, “In China, for many luxury brands, in terms of luxury consumption, the top cities are Beijing, Shanghai, Shenyang, Hangzhou, Chengdu and Dalian. Guangzhou is still not really in that top echelon.”

Still, brands continue to expand, or make their debut, in Guangzhou. Yesterday, Louis Vuitton opened its largest China flagship in Guangzhou, an 1,800 square meter mega-store at Taikoo Hui mall, and at the city’s La Perle mall, Hermes recently opened a fully remodeled location and Gucci re-entered the city after a seven-year absence. The question now is, will the Guangzhou luxury market finally start to live up to its potential?

As of this year, Hermes, LV, Chanel, GUCCI, Dior, Fendi, Prada and other international luxury brands will have opened locations in Guangzhou. This indicates that the city’s luxury consumption is finally putting it in the country’s top tier. Guangzhou’s luxury market grew rapidly after the city’s hosting of the 2010 Asian Games, with Taikoo Hui [shopping mall] general manager Hao Jilin telling reporters that 70 percent of the brands at his mall are international. This is an eye-catching development.

Among them, La Perle’s Hermes location will be the first in Asia to stock the brand’s home furnishings line, and its LV boutique was just renovated at a cost estimated in the eight digits. The city also boasts Chanel’s first location in south China, and Dior will debut its full line at its flagship this November. Since re-launching earlier this year, the Gucci store at La Perle has seen long queues every weekend. As a manager at La Perle pointed out, DKNY and Dior Homme will soon make their Guangzhou debut. As more brands set up shop at La Perle, sales continue to rise. According to a mall spokesman, sales of international top-level brands are increasing by 20 percent per month.

While it’s one thing to base perceptions about Guangzhou’s luxury market on the word of a mall spokesperson, the key to addressing whether the city is a good bet for major brands lies in consumer behavior. Up until now, Guangzhou’s proximity to nearby, duty-free Hong Kong has been perhaps the greatest hindrance for luxury brands, as Guangzhou locals have traditionally preferred to simply pop over the border and buy high-end goods at a significant discount. But, as the Yangcheng Evening News holds, this may be changing.

While Guangzhou’s luxury consumers have the habit of heading to Hong Kong to buy high-end goods, this seems to be slowly changing. It’s been reported that Guangzhou’s regular luxury consumers spent on average 70,000 yuan (US$10,860) more in 2010 than they did the previous year on luxury goods. As a representative of La Perle mall explained, last year the mall’s overall sales rose 25 percent.

Ultimately, Guangzhou’s sales boost seems to come primarily from the convenience factor. As one shopper told Efu this week at the opening of the new Louis Vuitton flagship at Taikoo Hui, “We all know that prices [here] are higher than in Hong Kong or overseas, but it’s really convenient. So if I think of a gift I want to buy for someone, I can go get it right away. It used to be that Guangzhou barely had any [major] brands.”